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Friday, January 29, 2016

Stocks Manage Gains, Tech and Energy Lead Advance

Schwab Market Update

Posted: 1/28/2016 4:15 PM ET

Stocks Manage Gains, Tech and Energy Lead Advance

U.S.
stocks finished the regular trading session with solid gains, aided by a
rally in crude oil prices and as Facebook highlighted the earnings
front, giving a boost to the technology sector. In economic news, a
sharp drop in domestic durable goods orders may have increased
uncertainty toward the trajectory of future rate hikes from the Fed
ahead of tomorrow's first look at 4Q GDP. Treasuries dipped, while gold
and the U.S. dollar were also lower.

The Dow Jones Industrial
Average (DJIA) increased 125 points (0.8%) to 16,070, the S&P 500
Index advanced 10 points (0.5%) to 1,893, and the Nasdaq Composite was
39 points (0.9%) higher at 4,507. In heavy volume, 1.1 billion shares
were traded on the NYSE and 2.3 billion shares changed hands on the
Nasdaq. WTI crude oil rose $0.92 to $33.22 per barrel and wholesale
gasoline increased $0.03 to $1.10 per gallon, while the Bloomberg gold
spot price decreased $10.90 to $1,114.07 per ounce. Elsewhere, the
Dollar Index—a comparison of the U.S. dollar to six major world
currencies—was 0.3% lower at 98.59.

Ford Motor Co.
(F $12) announced 4Q EPS ex-items of $0.58, topping the forecasted
$0.50, as revenues rose 12.1% y/y to $37.9 billion, above the expected
$36.6 billion. F said it expects full-year revenue and EPS to be equal
to or higher than 2015, though profit margins in its North America
business and automotive operating-related cash flow may not equal levels
achieved in 2015. Shares moved lower.

Durable goods orders (chart)
were down 5.1% month-over-month (m/m) in December, compared to the
Bloomberg estimate of a 0.7% decline, and November's downwardly revised
0.5% decrease. Ex-transportation, orders fell 1.2% m/m, versus the 0.1% forecasted dip and November's negatively revised 0.5% decline. Orders for non-defense capital goods excluding aircraft,
considered a proxy for business spending, dropped 4.3%, compared to
projections of a 0.2% decrease and the downwardly revised 1.1% decline
in the month prior. The report showed broad-based weakness, with the
volatile components of the report—defense and non-defense aircraft and
parts—both falling sharply, but standout drags came from a tumble in
communications equipment, which was met with solid declines in
manufacturing and machinery.

The report likely elevated recession concerns ahead of tomorrow's first look (of three) at 4Q GDP, projected to show growth slowed from a 2.0% q/q annualized rate of growth in 3Q to a pace of 0.8% (economic calendar). However, Schwab's Chief Investment Strategist, Liz Ann Sonders notes in her article, Changes: Turn and Face the Strange (Market),
we are in a manufacturing recession, but at this point, the much larger
services segment of the economy is showing sustained growth.
Historically, if the annual average of industrial production is down for
an entire year, weakness spread to the broader economy. We have yet to
see that kind of weakness, but it’s on our watch list. Every predictive
recession model she has studied still suggests a low risk of recession.
In fact, if we are in one or heading toward one, it would be the first
time in history the leading indicators did not roll over and provide
ample warning. Read more at www.schwab.com/marketinsight and follow Liz Ann on Twitter: @lizannsonders.

Weekly initial jobless claims (chart)
fell by 16,000 to 278,000 last week, versus estimates of a decline to
281,000 as the prior week's figure was revised upward by 1,000 to
294,000. The four-week moving average decreased by 2,250 to 283,000,
while continuing claims rose by 49,000 to 2,268,000, north of the
forecasted 2,218,000 level.

Pending home sales ticked
0.1% higher m/m in December, versus projections of a 0.9% rise and
following the downwardly revised 0.9% decline registered in November.
Compared to last year, sales were 3.1% higher, versus forecasts of a
4.8% rise. Pending home sales reflect contract signings and are used as a
gauge of the pipeline of existing home sales, which jumped in December.

The Kansas City Fed Manufacturing Activity Index for
January remained at December's -9 level, versus forecasts of a decline
to -10, with a reading south of zero depicting contraction.

Additional items on tomorrow's economic docket will include the Chicago Purchasing Managers Index for
January, expected to show activity in the Midwest improved to 45.3 from
the 42.9 posted in December, though a reading below 50.0 represents
contraction. We will also receive the final University of Michigan Consumer Sentiment Index for
January, forecasted to inch lower to 93.0 from the 93.3 registered in
the preliminary release, but up from the 92.6 reading for December.

Europe lower and Asia mixed following Fed decision

European
equities traded lower, with yesterday's monetary policy statement from
the Federal Reserve, which led to a late-session drop in the U.S.,
causing some confusion regarding the trajectory of future rate hikes.
Traders digested some mixed earnings reports from both sides of the
pond, along with the disappointing U.S. durable goods report. In
economic news, preliminary U.K. 4Q GDP rose at a 0.5% q/q pace, matching
expectations, and compared to the 0.4% gain in 3Q. German consumer
price inflation fell in line with forecasts for January, while eurozone
economic confidence declined for this month. Oil & gas issues showed
some strength as crude oil prices rallied, but Italian banks remained
under pressure on continued concerns about bad loans. The euro traded
higher versus the U.S. dollar and bond yields in the region finished
mixed. The Schwab Center for Financial Research offers a look at Market Volatility: What Investors Should Know, at www.schwab.com/marketinsight and follow Schwab on Twitter: @schwabresearch.

Stocks
in Asia finished mixed on the heels of yesterday's drop in the U.S. as
traders grappled with the Fed's monetary policy statement after it left
its target rate range unchanged. Japanese equities declined on the heels
of an unexpected dip in the nation's retail sales for December, but
some losses were pared late in the session as the yen gave up early
strength. Also, traders may have treaded cautiously ahead of tomorrow's
monetary policy decision from the Bank of Japan. Schwab's Chief Global
Investment Strategist, Jeffrey Kleintop, CFA, offers a look at the
global monetary policy front in his article, Central Banks to the Rescue?.
Mainland Chinese stocks continued their rout on festering economic
growth concerns and despite the People's Bank of China continuing to
pump liquidity into the financial system. Schwab's Jeffrey Kleintop,
CFA, offers a look at China in his article, Chinese Stock Market Selloff: What's New, What's Not. Read both articles at www.schwab.com/marketinsight, and follow Jeff on Twitter: @jeffreykleintop.
Stocks trading in Hong Kong and South Korea gained ground and
Australian securities also moved higher with oil & gas, basic
materials and financial stocks showing some resiliency, while Indian
equities declined.

In addition to the aforementioned monetary
policy decision from the Bank of Japan, the international economic
docket for tomorrow will be flooded with releases from the island nation
on its jobless rate, CPI, industrial production, consumer confidence,
vehicle production, housing starts and construction orders. Australia
will report its PPI and private sector credit growth, while additional
releases from across the pond will include retail sales from Germany,
consumer spending from France and CPI for the eurozone.

Schwab
Center for Financial Research ("SCFR") is a division of Charles Schwab
& Co., Inc. The information contained herein is obtained from
third-party sources and believed to be reliable, but its accuracy or
completeness is not guaranteed. This report is for informational
purposes only and is not a solicitation, or a recommendation that any
particular investor should purchase or sell any particular security. The
investment information mentioned here may not be suitable for everyone.
Each investor needs to review an investment strategy for his or her own
particular situation before making any investment decision. All
expressions of opinions are subject to change without notice in reaction
to shifting market conditions.

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